McDonald’s to drop prices by 6-15% as sales growth plummets

NEW DELHI: McDonald's, the world's largest fast-food chain, will cut prices of more than half the items in its menu in India by up to 15% to arrest a slide in its growth and push expansion, a top official said.

In its biggest pricing strategy in the country yet, the burgerand-fries chain will slash prices of entry-level and core products within categories like extra value meals, breakfast products and desserts by 6%-15% from August 1.

McDonald's India (North & East) MD and joint venture partner Vikram Bakshi said the company wants to accelerate sales even if it means lower margins at a time when samestore comparable sales growth has dropped to high single digits in April-June from double digit growth last year.

"There is pressure on consumption and people are beginning to hold back spending... the objective of our price rationalisation is to give them more reasons to come to our stores," Bakshi said. Continued food price inflation and a slowdown in the country's economic growth rate—which slipped to a nine-year low of 5.3% in the fourth quarter of the last fiscal—have impacted overall consumer sentiment and made many people to spend less on discretionary items such as clothing, food and entertainment.

Analysts say the price cut will help McDonald's speed up growth. "The price reductions are substantial and overall it appears to be a good move in the current economic environment, as long as it is financially sustainable for them," Pinaki Ranjan Mishra, partner & national leader, retail & consumer products at consulting firm Ernst & Young, said. Rivals too agree that consumers have become highly price sensitive.

"With high inflation, we understand that consumers are looking for value more than ever," said a spokesperson of Yum! Restaurants India, which operates KFC and Pizza Hut chains in the country. "We constantly evaluate our strategy to keep our prices stable and continue to provide great value to our consumers across our brands," the person said without divulging specific pricing plans. Along with the price cut, McDonald's will also launch McEgg burger, a local innovation, under its happy price menu at Rs 25. "It is our big bet this year and aimed at making the entry-level menu more robust," Bakshi said.

Happy price menu—Indian version of McDonald's popular dollar menu in the US and other developed markets—contributes 30% of the chain's total sales. This is the first time Big Mac will be cutting prices of so many products in one go in India. The move is line with the fast food giant's international positioning of value and affordability, with more stress on volumes than margins.